Monday, July 31, 2006

Calls of Note Part 4

- Goldman is adding Jabil Circuit (NYSE:JBL) to the Americas Conviction Buy List with a 6-month $28 price target. Jabil has had a strong track record of positive earnings revisions and execution. However shares have come under pressure due to "3 strikes": 1) a new restructuring program, 2) execution missteps, and 3) an ESO backdating investigation. Firm believes that shares of JBL have pulled back to levels that make it attractive if the company can get earnings back on track - they believe it can. Firm's $28 target price implies 21% upside from current levels. FY4Q2006 (August) earnings report in late September and a traditional 4Q rally should serve as catalysts to move shares higher.

Jabil will report FY4Q06 results on September 26, 2006. Management has set expectations that its 3 execution problems in FY3Q06 would continue through the end of fiscal 2006 with improvement in fiscal 2007. Goldman believes that the company will positively surprise on these operational issues potentially leading to EPS upside relative to guidance, consensus and estimates. Second, Jabil has rallied in/around the fourth calendar quarter 8 out of the last 10 years, outperforming the S&P500 during all of those rallies.